FORM 10-QSB
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (D)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2001
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (D)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM ----- TO -----
COMMISSION FILE NUMBER 0-18599
BLACKHAWK BANCORP, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
WISCONSIN 39-1659424
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
400 BROAD STREET
BELOIT, WISCONSIN 53511
(ADDRESS OF PRINCIPLE EXECUTIVE OFFICES)
(608) 364-8911
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
NOT APPLICABLE
(FORMER NAME, FORMER ADDRESS AND FORMER FISCAL YEAR,
IF CHANGED SINCE LAST REPORT)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months, and (2) has been subject to such filing requirements
for the past 90 days.
YES X NO
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Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
OUTSTANDING AT
CLASS OF COMMON STOCK JULY 31, 2001
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$.01 PAR VALUE 2,361,727 SHARES
INDEX
PART I - FINANCIAL INFORMATION
PAGE
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ITEM 1. FINANCIAL STATEMENTS
Consolidated Condensed Balance Sheets as of
June 30, 2001 and December 31, 2000 3
Consolidated Condensed Statements of Income for the
Three Months Ended June 30, 2001 and 2000 4
Consolidated Condensed Statements of Income for the
Six Months Ended June 30, 2001 and 2000 5
Consolidated Condensed Statements of Shareholders'
Equity for the Six Months Ended June 30, 2001 and 2000 6
Consolidated Condensed Statements of Cash Flows for the
Six Months Ended June 30, 2001 and 2000 7-8
Notes to Consolidated Condensed Financial Statements 9-11
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS 12-17
PART II - OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS 18
ITEM 6. A) EXHIBITS 18
B) REPORTS ON FORM 8-K 19
SIGNATURES 20
BLACKHAWK BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED CONDENSED BALANCE SHEETS
(UNAUDITED)
JUNE 30, 2001 DECEMBER 31, 2000
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(Dollars in thousands)
ASSETS
- ------
Cash and cash equivalents $ 13,761 $ 13,336
Interest-bearing deposit accounts 399 780
Federal funds sold and other short-term investments 459 2,529
Securities available-for-sale 45,079 54,068
Securities held-to-maturity, fair value of $21,799 and $18,530 21,394 18,530
Loans held for sale 3,651 739
Loans, net of allowance for loan losses of $2,057 and $3,894 217,051 216,926
Federal Home Loan Bank of Chicago Stock 2,281 2,200
Bank premises and equipment, net 6,925 6,732
Intangible assets 5,361 5,671
Accrued interest receivable 2,253 2,481
Other assets 2,724 3,179
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Total Assets $321,338 $ 327,171
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LIABILITIES AND SHAREHOLDERS' EQUITY
- ------------------------------------
LIABILITIES:
Deposits:
Non-interest bearing $ 27,416 $ 28,875
Interest bearing 208,861 232,068
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Total deposits 236,277 260,943
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Borrowed funds:
Short-term borrowings 10,060 9,873
Other borrowings 48,809 30,031
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Total borrowed funds 58,869 39,904
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Accrued interest payable 1,268 1,765
Other liabilities 1,318 1,564
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Total Liabilities 297,732 304,176
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SHAREHOLDERS' EQUITY:
Preferred stock
1,000,000 shares, $.01 par value per share authorized,
none issued or outstanding -- --
Common stock
10,000,000 shares, $.01 par value per shares authorized;
2,367,248 and 2,347,598 shares issued and outstanding 24 23
Additional paid-in capital 7,535 7,417
Retained earnings 15,626 15,573
Treasury stock, 8,328 and 10,324 shares, at cost (102) (120)
Accumulated other comprehensive income 523 102
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Total Shareholders' Equity 23,606 22,995
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Total Liabilities and Shareholder's Equity $321,338 $327,171
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See Notes to Unaudited Consolidated Condensed Financial Statements.
BLACKHAWK BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
(UNAUDITED)
Three Months Ended June 30,
2001 2000
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(Dollars in Thousands)
INTEREST INCOME:
Interest and fees on loans $4,806 $4,208
Interest on securities:
Taxable 741 963
Exempt from federal income taxes 192 138
Interest on federal funds sold and other short-term investments 20 7
Interest on interest-bearing deposits 13 43
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Total Interest Income 5,772 5,359
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INTEREST EXPENSE:
Interest on deposits 2,374 2,236
Interest on short-term borrowings 114 483
Interest on other borrowings 711 255
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Total Interest Expense 3,199 2,974
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Net Interest Income 2,573 2,385
Provision for loan losses (Note 3) 171 90
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Net Interest Income After Provision for Loan Losses 2,402 2,295
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OTHER OPERATING INCOME:
Service charges on deposit accounts 435 398
Gain on sale of mortgage loans 142 38
Gain on sale of securities 94 24
Brokerage and annuity commissions 65 67
Other income 89 128
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Total Other Operating Income 825 655
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OTHER OPERATING EXPENSES:
Salaries and employee benefits 1,330 1,212
Occupancy expense, net 182 160
Furniture and equipment 195 202
Data processing 177 190
Amortization of intangible assets 124 139
Legal and professional fees 117 76
Office supplies 68 58
Telephone and telecommunications 71 63
Other operating expenses 442 466
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Total Other Operating Expenses 2,706 2,566
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Income Before Income Taxes 521 384
Provision for Income Taxes 169 123
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Net Income $ 352 $ 261
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Basic Earnings Per Share $ 0.15 $ 0.11
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Diluted Earnings Per Share $ 0.15 $ 0.11
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Dividends Per Share $ 0.12 $ 0.12
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See Notes to Unaudited Consolidated Condensed Financial Statements.
BLACKHAWK BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
(UNAUDITED)
Six Months Ended June 30,
2001 2000
---- ----
(Dollars in Thousands)
INTEREST INCOME:
Interest and fees on loans $ 9,534 $ 8,257
Interest on securities:
Taxable 1,629 1,831
Exempt from federal income taxes 363 271
Interest on federal funds sold and other short-term investments 38 15
Interest on interest-bearing deposits 26 83
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Total Interest Income 11,590 10,457
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INTEREST EXPENSE:
Interest on deposits 4,886 4,456
Interest on short-term borrowings 335 774
Interest on other borrowings 1,370 521
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Total Interest Expense 6,591 5,751
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Net Interest Income 4,999 4,706
Provision for loan losses (Note 3) 275 180
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Net Interest Income After Provision for Loan Losses 4,724 4,526
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OTHER OPERATING INCOME:
Service charges on deposit accounts 824 714
Gain on sale of mortgage loans 230 53
Gain on sale of securities 94 24
Brokerage and annuity commissions 83 141
Other income 196 272
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Total Other Operating Income 1,427 1,204
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OTHER OPERATING EXPENSES:
Salaries and employee benefits 2,597 2,409
Occupancy expense, net 388 331
Furniture and equipment 389 408
Data processing 330 379
Amortization of intangible assets 248 279
Legal and professional fees 211 133
Office supplies 150 115
Telephone and telecommunications 147 122
Other operating expenses 795 792
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Total Other Operating Expenses 5,255 4,968
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Income Before Income Taxes 896 762
Provision for Income Taxes 278 249
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Net Income $ 618 $ 513
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------- -------
Basic Earnings Per Share $ 0.26 $ 0.22
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Diluted Earnings Per Share $ 0.26 $ 0.21
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Dividends Per Share $ 0.24 $ 0.24
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See Notes to Unaudited Consolidated Condensed Financial Statements.
BLACKHAWK BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED CONDENSED STATEMENTS OF SHAREHOLDERS' EQUITY
(UNAUDITED)
Six Months Ended June 30,
2001 2000
---- ----
(Dollars in thousands)
Common Stock:
Balance at beginning of period $ 23 $ 23
Stock options exercised 1 --
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Balance at end of period 24 23
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Additional Paid-in Capital:
Balance at beginning of period 7,417 7,307
Stock options exercised 118 53
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Balance at end of period 7,535 7,360
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Retained Earnings:
Balance at beginning of period 15,573 16,973
Net income 618 513
Dividends declared on common stock (565) (557)
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Balance at end of period 15,626 16,929
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Treasury Stock, at cost:
Balance at beginning of period (120) (120)
Sale of treasury stock 18 --
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Balance at end of period (102) (120)
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Accumulated other comprehensive income (loss):
Balance at beginning of period 102 (858)
Other comprehensive income (loss), net of taxes 421 (4)
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Balance at end of period 523 (862)
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Total Shareholders' Equity $23,606 $23,330
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See Notes to Unaudited Consolidated Condensed Financial Statements.
BLACKHAWK BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Six Months Ended June 30,
2001 2000
---- ----
(Dollars in thousands)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $ 618 $ 513
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Provision for loan losses 275 180
Provision for depreciation and amortization 698 795
Amortization of premiums and (accretion of
discounts) on Investment securities, net 29 24
Gain on sale of loans held for sale (230) (53)
FHLB stock dividends (75) --
Gain on sale of property, equipment and OREO (5) (2)
Gain on sale of securities (94) (24)
Loans originated for sale (16,316) (3,372)
Proceeds from sale of loans held for sale 13,633 3,404
Change in assets and liabilities:
Decrease in other assets 458 382
(Increase) decrease in accrued interest receivable 223 (159)
Increase (decrease) in accrued interest payable (497) 169
Increase (decrease) in other liabilities (183) 168
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Net cash provided by (used in) operating activities (1,466) 2,025
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CASH FLOWS FROM INVESTING ACTIVITIES:
Decrease in federal funds sold, interest-bearing deposits and
other short-term investments, net 2,451 1,443
Proceeds from maturities and calls of securities available-for-sale 23,608 1,789
Purchase of securities available-for-sale (13,952) (12,582)
Proceeds from maturities and calls of securities held-to-maturity 1,629 3,389
Purchase of securities held-to-maturity (4,528) (1,624)
Proceeds from sale of securities available-for-sale 96 4,820
Loans originated, net of principal collected (1,265) (12,137)
Proceeds from the sale of property, equipment and OREO 641 356
Purchase of bank premises and equipment (661) (137)
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Net cash provided by (used in) investing activities 8,019 (14,683)
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CASH FLOWS FROM FINANCING ACTIVITIES:
Stock options exercised 119 53
Sale of treasury stock 18 --
Net decrease in deposits (24,665) (6,989)
Net increase in borrowings 18,965 20,465
Dividends paid (565) (557)
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Net cash provided by (used in) financing activities (6,128) 12,972
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Increase in cash and cash equivalents 425 314
CASH AND CASH EQUIVALENTS:
Beginning 13,336 11,994
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Ending $ 13,761 $ 12,308
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SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash payments for:
Interest $ 7,088 $ 5,582
Income taxes 108 150
SUPPLEMENTAL SCHEDULE OF NON-CASH FINANCING ACTIVITIES:
Other assets acquired in settlement of loans $ 741 $ 379
See Notes to Unaudited Consolidated Condensed Financial Statements.
BLACKHAWK BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
June 30, 2001
Note 1. General
The accompanying consolidated condensed financial statements conform
to generally accepted accounting principles and to general practices
within the banking industry. The more significant policies used by
the Company in preparing and presenting its financial statements are
stated in the Company's Form 10-KSB.
The effect of timing differences in the recognition of revenue and
expense for tax liability is not determined until the end of each
fiscal year.
In the opinion of Management, the accompanying unaudited consolidated
condensed financial statements contain all adjustments (consisting of
normal recurring accruals) necessary to present fairly the financial
position of the Corporation as of June 30, 2001, and the results of
operations for the three and six months ended June 30, 2001 and 2000.
The results of operations for the three and six months ended June 30,
2001 and 2000 are not necessarily indicative of the results to be
expected for the full year.
Certain reclassifications have been made to the 2000 historical
financial statements to conform to the 2001 presentation.
Note 2. Non-Performing Loans
Non-performing loans includes loans which have been categorized by
management as non-accruing because collection of interest is not
assured, and loans which are past-due ninety days or more as to
interest and/or principal payments. The following summarizes
information concerning non-performing loans:
June 30,
----------------------
(Dollars in Thousands)
2001 2000
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Non-accruing loans $1,407 $1,892
Past due 90 days or more and still accruing 1,048 693
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Total non-performing loans $2,455 $2,585
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Performing loans classified as impaired $ 420 $ --
Note 3. Allowance For Loan Losses
A summary of transactions in the allowance for loan losses is as
follows:
Three Months Ended June 30,
(Dollars in Thousands)
2001 2000
---- ----
Balance at beginning of period $3,912 $2,015
Provision charged to expense 171 90
Loans charged off 2,076 53
Recoveries 50 17
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Balance at end of period $2,057 $2,069
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Six Months Ended June 30,
(Dollars in Thousands)
2001 2000
---- ----
Balance at beginning of period $3,894 $1,996
Provision charged to expense 275 180
Loans charged off 2,168 127
Recoveries 56 20
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Balance at end of period $2,057 $2,069
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Note 4. Earnings Per Share
Presented below are the calculations for basic and diluted earnings
per share:
Three Months Ended Six Months Ended
June 30, June 30,
2001 2000 2001 2000
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Basic:
Net income available to common stockholders $ 352,000 $ 261,000 $ 618,000 $ 513,000
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Weighted average shares outstanding 2,348,125 2,323,384 2,343,687 2,320,317
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Basic earnings per share $ 0.15 $ 0.11 $ 0.26 $ 0.22
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Diluted:
Net income available to common stockholders $ 352,000 $ 261,000 $ 618,000 $ 513,000
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Weighted average shares outstanding 2,348,125 2,323,384 2,343,687 2,320,317
Effect of dilutive stock options outstanding 42,685 138,156 42,685 138,156
---------- ---------- ---------- ----------
Diluted weighted average shares outstanding 2,390,810 2,461,540 2,386,372 2,458,473
---------- ---------- ---------- ----------
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Diluted earnings per share $ 0.15 $ 0.11 $ 0.26 $ 0.21
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Note 5. Recent Accounting Developments
Business Combinations
In June 2001, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 141, "Business
Combinations", and SFAS No. 142, "Goodwill and Other Intangible
Assets." SFAS No. 141 supersedes Accounting Principles Board (APB)
Opinion No. 16, "Business Combinations", and SFAS No. 38, "Accounting
for Preacquisition Contingencies of Purchased Enterprises." SFAS No.
141 requires the use of the purchase method of accounting for business
combinations initiated after June 30, 2001. SFAS No. 142 supersedes
APB Opinion No. 17, "Intangible Assets." SFAS No. 142 addresses how
intangible assets acquired outside of a business combination should be
accounted for upon acquisition and how goodwill and other intangible
assets should be accounted for after they have been initially
recognized. SFAS No. 142 eliminates the amortization for goodwill and
other intangible assets with indefinite lives. Other intangible
assets with a finite life will be amortized over their useful life.
Goodwill and other intangible assets with indefinite useful lives
shall be tested for impairment annually or more frequently if events
or changes in circumstances indicate that the asset may be impaired.
SFAS No. 142 is effective for fiscal years beginning after December
15, 2001.
The Company's strategy over the past several years has included
business combinations accounted for under the purchase accounting
method which created goodwill upon the transactions' closings. The
Company has goodwill of $3.2 million on its balance sheet as of June
30, 2001 which is being amortized over 20 years. The pronouncement
will have the effect of eliminating the amortization of this asset and
will subject it to periodic impairment analysis.
Management, at this time, cannot determine the effect that adoption of
SFAS No. 142 may have on the financial statements of the Company as
the statement requires a comprehensive review of previous combinations
accounted for under the purchase accounting method and an analysis of
impairment as of the date of adoption. The impairment analysis for
goodwill and other intangible assets with an indefinite useful life
has not been completed. The impairment analysis will be completed
within the timelines outlined in SFAS No. 142 which include an initial
transitional goodwill impairment test to be completed by June 30,
2002.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The purpose of Management's discussion and analysis is to provide relevant
information regarding the Registrant's financial condition and its results of
operations. The information included herein should be read in conjunction with
the consolidated condensed balance sheets as of June 30, 2001 and December 31,
2000 and the consolidated condensed statements of income for the three months
and six months ended June 30, 2001 and 2000. This information is not meant to
be a substitute for the consolidated condensed balance sheets and income
statements.
RESULTS OF OPERATIONS
Net income for the three and six months ended June 30, 2001 was $352,000 and
$618,000, respectively, compared to $261,000 and $513,000 for the similar
periods in 2000. The discussion that follows will provide information about the
various areas of income and expense that resulted in the aforementioned
financial performance.
THREE MONTHS ENDED JUNE 30
For the three months ended June 30, 2001, interest income was $5,772,000
compared to $5,359,000 for the same period in 2000. This increase of $413,000,
or 7.7%, was the result of increased interest and fees on loans of $598,000.
Offsetting the increased loan income was a decrease in interest on securities of
$168,000 while interest on short-term investments and deposits with banks
decreased $17,000 in aggregate.
Interest and fees on loans increased 14.2% to $4,806,000 for the three months
ended June 30, 2001 compared to $4,208,000 in the same period of 2000. Average
loans outstanding during the three months ended June 30, 2001 were $226.9
million, representing a $29.3 million, or 14.8%, increase over 2000 levels for
the similar period. Partially offsetting the increase in average balances was a
decline in loan yields to 8.50% for the three months ended June 30, 2001 from
8.54% for the same period in 2000. The decline in yields was held to four basis
points during a period of substantial downward pressure on rates as the
portfolio mixture continues to shift from lower-yielding 1-4 family real estate
loans. Of the $20.4 million increase in loans outstanding from June 30, 2000 to
June 30, 2001, $16.5 million was generated in the categories of commercial real
estate and commercial and industrial loans. The continued growth of the
commercial loan portfolio is expected as the Company pursues its strategic
direction of diversifying the former thrift balance sheets acquired in recent
years to the mix of a commercial bank.
Investment income on taxable securities and FHLB stock for the quarter ended
June 30, 2001 decreased $222,000 to $741,000, compared to $963,000 for the same
period in 2000, a decrease of 23.1%. The decrease was the result of a decrease
in volume that was partially offset by a portfolio yield increase during the
2001 quarter as compared to the 2000 quarter. Income from tax-exempt securities
increased to $192,000 for the three months ended June 30, 2001 from $138,000.
This increase was due to increased volumes and improved yields.
Interest on interest-bearing deposits, federal funds sold and other short-term
investments decreased to $33,000 in aggregate for the three months ended June
30, 2001, from $50,000 for the 2000 period. Lower yields on short-term
investments in the 2001 period more than offset an increase in average balances.
Interest paid on deposits increased 6.2% to $2,374,000 for the three months
ended June 30, 2001, from $2,236,000 for the three months ended June 30, 2000. A
3.5% increase in volume and an 11 basis point increase in funding costs produced
the increase. Costs on variable rate deposit accounts such as money markets and
the Company's premium rate checking product have fallen with rates throughout
the first part of 2001, however, higher cost, short-term time deposits added in
the latter half of 2000 that had yet to mature prior to or during the current
quarter generated the year over year cost increase. As those deposits continue
to renew at current market rates, the Company expects its costs of funds on
deposits to follow accordingly.
Interest on short-term borrowings decreased to $114,000 for the three months
ended June 30, 2001 from $483,000 in 2000, a decrease of $189,000. Interest on
long-term borrowings increased to $711,000 for the three months ended June 30,
2001, from $255,000 for the same period in 2000. Short-term borrowings,
including repurchase agreements, fed funds purchased, an open line of credit
with the Federal Home Loan Bank of Chicago ("FHLB"), and a line of credit with a
third party commercial bank, decreased as the Company reduced reliance on these
types of borrowings by converting portions to longer maturity term debt earlier
in the year. Costs also declined with these borrowings as short-term rates
continued to fall during the quarter. The increase in long-term borrowing costs
was driven by volume as average funding costs declined from the prior year
period.
The provision for loan losses was $171,000 for the quarter ended June 30, 2001
as compared to $90,000 for the same period in 2000. The increase occurred as
the Company continues to recognize much of its portfolio growth in the
commercial and installment lending areas. Also influencing the level of loan
loss provision is the manufacturing economic slowdown, which has had a negative
impact upon the local economies in markets served by the Company. It is
management's opinion that this amount represents an adequate provision.
Total non-interest income increased to $825,000, from $655,000 for the three
months ended June 30, 2001 and 2000, respectively. The primary reason for the
increase was the $104,000 increase in the gain on the sale of mortgage loans
during the second quarter of 2001 as compared to the 2000 quarter. Lower
overall interest rates in the mortgage market contributed to a shift towards
fixed rate loans in the purchase money mortgage market and a significant
increase in refinancing activity. With the Company's policy of marketing most
fixed rate mortgages to the secondary market, gains on mortgage loans intended
for the secondary market increased as sales volumes increased to $5.8 million
for the quarter ended June 30, 2001 from $2.5 million for the same period in
2000. Gains on the sales of investments increased $70,000 to $94,000 for the
three months ended June 30, 2001 as the Company sold certain equity holdings
during the period. An additional increase in deposit service charges was
substantially offset by a decline in mortgage servicing revenues which resulted
from the sale of the majority of the Company's mortgage servicing portfolio in
the second half of 2000.
For the three months ended June 30, 2001, total non-interest expense increased
slightly to $2,706,000 from $2,566,000 for the same period in 2000. Exclusive
of personnel costs, other non-interest expenses increased $22,000, or 1.62%.
Salaries and employee benefits increased $118,000, or 9.7%, during the 2001
quarter as variable compensation for mortgage production increased and as the
Company added sales staff in the brokerage and retail banking functions.
Increases in other non-interest expense were generally in line with overall
asset growth with the exception of legal and professional fees as the Company
continued to pursue its claim against a former data processing service provider.
Income taxes increased to $169,000, from $123,000, for the three-month period
ending June 30, 2001. The effective tax rates were 32.4% versus 32.0% for the
2001 and 2000 second quarters, respectively. The increased total income tax
expense resulted primarily from the higher level of pre-tax profit reported in
the three months ended June 30, 2001 compared to the same period in 2000.
SIX MONTHS ENDED JUNE 30
For the six months ended June 30, 2001, interest income was $11.6 million
compared to $10.5 million for the same period in 2000. This increase of $1.1
million was the result of increased interest and fees on loans of $1.3 million.
Partially offsetting the loan income was a slight net decrease in interest on
securities, short-term investments and interest on deposits with banks.
Interest and fees on loans increased 14.5% to $9.5 million for the six months
ended June 30, 2001, compared to $8.3 million in the same period of 2000.
Similar to the three-month period, increased volume was the most significant
factor for the increase. Complementing the increase in volume, yields were nine
basis points ahead of 2000 levels for the sixth months ended June 30.
Investment income on taxable securities for the six months ended June 30, 2001
decreased $0.2 million to $1.6 million, compared to $1.8 million for the same
period in 2000. The decrease was primarily the result of decreased volumes as
the Company's investment cash flows paid down borrowings and partially funded
loans. Income from tax-exempt securities increased to $363,000 for the six
months ended June 30, 2001, from $271,000 for the prior year period. This
increase was due to both increased volumes and higher average yields.
Interest paid on deposits increased $0.4 million to $4.9 million, or 8.9%, for
the six months ended June 30, 2001, from $4.5 million for the six months ended
June 30, 2000. The increase was the result of higher interest-bearing deposit
balances and a higher average cost paid on interest bearing-deposits in the 2001
period.
Interest on short-term borrowings decreased to $0.3 million for the six months
June 30, 2001, from $0.8 million in 2000. Interest on long-term borrowings
increased to $1.4 million for the six months ended June 30, 2001, from $0.5
million for the six months ended June 30, 2000. Early in 2001, the Company
restructured a substantial portion of its short-term borrowings into termed
borrowings. As a result, volumes have increased in the long-term borrowings,
while they have decreased in the short-term borrowings.
The provision for loan losses was $275,000 for the six months ended June 30,
2001, as compared to $180,000 for the same period in 2000. The increase occurred
as the Company continues to recognize much of its portfolio growth in the
commercial and installment lending businesses. Also influencing the level of
loan loss provision is the manufacturing sector slowdown, which has had a
negative impact upon the local economies in markets served by the Company. It
is management's opinion that this amount represents an adequate provision.
Total non-interest income increased 16.7% to $1.4 million, from $1.2 million for
the six months ended June 30, 2001 and 2000, respectively. The primary reason
for the increase was the $177,000 increase in the gain on the sale of mortgage
loans during the six months ended June 30, 2001, as compared to the same period
in 2000. The increase was driven by lower mortgage rates as discussed
previously. Increase in service charges on deposit accounts and the gain on
sale of securities were nearly offset by declines in brokerage and annuity
commissions and other income. Deposit service charges have benefited from
pricing structure changes while brokerage fees have been negatively impacted by
uncertainties that have developed in the financial markets. Other income
decreased primarily as a result of the sale of the majority of the bank's
serviced loan portfolio in the second half of 2000.
Total non-interest expense increased to $5.3 million for the six months ended
June 30, 2001, from $5.0 million for the comparable period in 2000. The
$287,000, or 6.0%, increase was predominantly the result of a $188,000 increase
in personnel costs for the same reasons as the quarter-to-date increase noted
previously. Additional significant increases occurred in legal and professional
fees due to the Company's lawsuit against a former data processing provider.
Income taxes increased to $278,000, from $249,000, for the six-month period
ending June 30, 2001. The effective tax rates were 31.0% versus 32.7% for the
six months ended June 30, 2001 and 2000, respectively.
ANALYSIS OF FINANCIAL CONDITION
This analysis of the Company's financial condition compares June 30, 2001 to the
Company's prior fiscal year end, December 31, 2000. Total assets were $321.3
million, as compared to $327.2 million as of December 31, 2000. This represents
a decrease of 1.8%.
Total investments, including securities held-to-maturity, securities available-
for-sale, Federal Home Loan Bank Stock, fed funds sold and other short-term
investments, were $69.2 million as of June 30, 2001, as compared to $77.3
million as of December 31, 2000. The portfolio decreased as cash flows have
generally been applied toward borrowings while other portions have been
redirected towards the lending portfolio.
Net portfolio loans totaled $217.1 million on June 30, 2001, as compared to
$216.9 million on December 31, 2000, an increase of $0.2 million. Commercial and
commercial real estate portfolios have increased $10.0 million, or 13.5%, from
December 31, 2000. The commercial growth was realized as 1-4 family secured
first and second mortgage balances declined $9.4 million, or 8.6%, during that
the same period. With the Company's 1-4 family mortgage portfolio concentrated
in adjustable rate loans, balances declined as rates dropped and borrowers opted
for long-term fixed rate loans that the Company generally sells to the secondary
market. The combination of these low mortgage rates and softness in general
business borrowing kept overall loan outstandings near the prior year-end
balances at June 30, 2001.
The allowance for loan losses decreased to $2.1 million as of June 30, 2001, as
compared to $3.9 million as of December 31, 2000. As of June 30, 2001, non-
performing loans were $2.5 million compared to $4.2 million at December 31,
2000. During the second quarter, the Company charged off a commercial real
estate loan with a balance of $1.95 million due to the continued deterioration
of the borrowers financial condition and the resulting decline in the realizable
value of the collateral. Management believes that the allowance is adequate at
this time.
Net bank premises and equipment totaled $6.9 million at June 30, 2001, compared
to $6.7 million at December 31, 2000. The increase occurred as capital
expenditures of $0.7 million, primarily related to the recent system conversion,
exceeded the period's depreciation provision of $0.4 million.
Total deposits as of June 30, 2001 were $236.3 million, a decline of 9.4%,
compared to $260.9 million as of December 31, 2000. Several commercial customers
have historically increased their deposit balances at year-end, which accounted
for the majority of the total decline in deposits from December 31, 2000 levels.
Excluding short-term deposits held at December 31, 2000 of $25.3 million,
interest-bearing deposits increased $2.1 million to $208.9 million. Increased
balances in interest bearing transaction accounts offset a decline in time
deposits during the sixth month period. Non-interest bearing deposits also
decreased to $27.4 million, from $28.9 million as of December 31, 2000.
Short-term borrowings, fed funds purchased and repurchase agreements increased
to $10.1 million at June 30, 2001, from $9.9 million as of year-end. Other
borrowings, consisting of debt incurred, in part, to complete the First
Financial acquisition in 1998 and term advances from the FHLB were $48.8 million
at June 30, 2001, up from $30.0 million at year end. These sources of non-
deposit funding were utilized to replace the large year-end short-term deposit.
The use of FHLB advances in the future will depend on the Company's need for
funds and the rates at which they may be obtained.
The company continues to maintain a well-capitalized position regardless of the
measurement used. The following table shows three different measurements as of
June 30, 2001 and December 31, 2000, and the regulatory requirement, if any. The
increases in the Leverage Capital Ratio and Tier I Capital to Risk-Based Assets
Ratio are generally attributable to declines in asset levels from December 31,
2000. The decline in the Total Capital to Risk-Weighted Assets Ratio was
predominantly due to the decline in Tier 2 capital resulting from the $1.95
million dollar charge-off, which reduced the allowance for loan loss inculpable
in Tier 2 capital
JUNE 30, DECEMBER 31, REGULATORY
2001 2000 REQUIREMENTS
-------- ------------ ------------
Leverage capital ratio 5.72% 5.60% 4.00%
Tier I capital as a percent
of risk-based 8.41% 8.30% 4.00%
Total capital as a percent
of risk-based assets 9.37% 9.60% 8.00%
Liquidity, as it relates to the subsidiary bank, is a measure of its ability to
fund loans and withdrawals of deposits in a cost-effective manner. The Bank's
principal sources of funds are deposits, scheduled amortization and prepayment
of loan principal, maturities of investment securities, income from operations,
and short-term borrowings. Additional sources include purchasing fed funds,
sale of securities, sale of loans, borrowing from both the Federal Reserve Bank
and Federal Home Loan Bank, and dividends paid by Nevahawk to the Bank. Under
present law, accumulated earnings could be paid as dividends without incurring a
tax liability.
The liquidity needs of the Company generally consists of payment of dividends to
its shareholders, payments of principal and interest on borrowed funds, and a
limited amount of expenses. The sources of funds to provide this liquidity are
income from investments, maturities of investments, cash balances, issuance of
capital and dividends from its subsidiary bank. Certain restrictions are
imposed upon the Bank, which could limit its ability to pay dividends if it did
not have net earnings or adequate capital in the future. The Company maintains
adequate liquidity to pay its expenses.
Off-balance sheet items consist of credit card lines of credit, mortgage
commitments, letters of credit and other commitments totaling approximately
$27.2 million as of June 30, 2001. This compares to $34.0 million at December
31, 2000. The Bank has historically funded off-balance sheet commitments with
its primary sources of funds, and management anticipates that this will
continue.
The Company's consolidated assets include a $271,000 receivable that relates to
an improper charge made by the Company's former data processing service
provider ("Provider") to the Company's check clearing account maintained with
the Federal Home Loan Bank of Chicago. Upon discovery of the Provider's error
and following the Provider's initial acknowledgement of that error, the Company
worked closely with the Provider to attempt to recover the amount improperly
charged. During the third quarter of 2000, the Provider notified the Company
that it was unable to pursue the matter further and that the Provider did not
intend to indemnify the Company on account of this error.
In response, the Company filed a complaint in the Circuit Court of Waukesha
County, Wisconsin on August 18, 2000, seeking to recover the amount of the
improper charge from the Provider. While the Company believes it is entitled
to recovery, it can provide no assurance that it will ultimately prevail in the
litigation. Moreover, the Company will incur costs and legal fees in connection
with its pursuit of this matter, and it may be unable to recover those costs
and fees. The potential amount of those costs and fees depends on how this
litigation develops and ultimately is resolved, and the Company cannot predict
that amount with certainty at this time.
Given the lack of significant movement toward a resolution of this matter in
the final quarter of 2000, and pursuant to the application of regulatory
guidelines and principles under these circumstances, the Company wrote this
contingent asset down approximately 50% to the current level of $271,000. In
the unlikely event that the Company is unsuccessful in recovering any portion
of this improper charge, the Company would be required to write off the
remaining $271,000 balance of this contingent asset through a further charge
against earnings in the period in which the receivable is deemed uncollectable.
Legal costs and fees incurred in connection with these proceedings are being
charged against earnings as incurred.
PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
The matters discussed in this report, including expectations regarding interest
income, interest expense, and net interest margin, operating results and net
income are forward-looking statements that involve risks and uncertainties. The
assumptions and risk factors that may cause actual results to differ materially
include but are not limited to, changes in interest rates or in the volume of
earning assets and liabilities, increases in non-performing or delinquent loans,
increased competition, changes in the volume of loans originated for the
secondary market and changes in the volume sales of non-deposit investment
products by the Company's brokerage operation, as well as those described from
time to time in the Company's SEC filings.
PART II
OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS
On May 16, 2001, at the annual meeting of shareholders of the Company, the
shareholders re-elected Charles J. Howard and Roger K. Taylor and elected
Merritt J. Mott to three-year terms expiring in 2004. The vote, with respect to
the election of each director was as follows:
Charles J. Howard
2,341,474 total votes eligible to be cast
2,138,986 votes were represented at the Annual Meeting
1,988,025 votes were cast "For" re-election
No votes were cast "Against" re-election
150,961 votes abstained
Roger K. Taylor
2,341,474 total votes eligible to be cast
2,138,986 votes were represented at the Annual Meeting
1,987,775 votes were cast "For" re-election
No votes were cast "Against" re-election
151,211 votes abstained
Merritt J. Mott
2,341,474 total votes eligible to be cast
2,138,986 votes were represented at the Annual Meeting
1,985,553 votes were cast "For" re-election
No votes were cast "Against" re-election
153,433 votes abstained
In addition, as detailed in the Company's Proxy Statement dated April 17, 2001,
the shareholders defeated a shareholder proposal requesting the Board of
Directors to explore options to maximize shareholder value through sale of the
Company. The result of the vote is as follows:
2,341,474 total votes eligible to be cast
2,138,986 votes were represented at the Annual Meeting
357,328 votes were cast "For" the proposal
1,388,583 votes were cast "Against" the proposal
25,363 votes were withheld
367,712 votes abstained
ITEM 6. A) EXHIBITS
See Exhibit Index following the signature page in this report, which
is incorporated herein by this reference.
B) REPORTS ON FORM 8-K
There were two reports on Form 8-K filed during the three months ended
June 30, 2001.
The report dated May 8, 2001 related to the appointment of Mr. R.
Richard Bastian, III as President and Chief Executive Officer of
Blackhawk State Bank and as President and Chief Operating Officer of
Blackhawk Bancorp, Inc. Mr. Dennis M. Conerton, current President and
Chief Executive Officer, will remain Chief Executive Officer of
Blackhawk Bancorp, Inc. and was appointed Chairman of Blackhawk State
Bank and of Blackhawk Bancorp, Inc.
The report dated May 21, 2001 announced the appointment of Mr. R.
Richard Bastian, III as a director of Blackhawk State Bank and
Blackhawk Bancorp, Inc. and detailed the actions taken at the
Company's Annual Meeting of Shareholders.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Blackhawk Bancorp, Inc.
-------------------------------------------
(Registrant)
Date: August 7, 2001 /s/ Dennis M. Conerton
-------------------------------------------
Dennis M. Conerton
Chairman and Chief Executive Officer
Date: August 7, 2001 /s/ Keith D. Hill
-------------------------------------------
Keith D. Hill
Vice President
(Chief Financial and Accounting Officer)
BLACKHAWK BANCORP, INC.
INDEX TO EXHIBITS
Incorporated Filed
Exhibit Herein By Here- Page
Number Description Reference To: with No.
- ------ ----------- ------------- ---- ---
4.1 Amended and Exhibit 3.1 to
restated Articles Amendment No. 1 to
of Incorporation Registrant's
of the Registrant Registration
Statement on Form
S-1 (Reg. No.
33-32351)
4.2 By-laws of Regis- Exhibit 3.2 to
trant as amended Amendment No. 1 to
Registrant's
Registration
Statement on Form
S-1 (Reg. No.
33-32351)
4.3 Plan of Conversion Exhibit 1.2 to
Beloit Savings Amendment No. 1 to
Bank as amended Registrant's
Registration
Statement on Form
S-1 (Reg. No.
33-32351)